Financial Service Board clamps down on Net1's insurance to poor
In February 2012, the South African Social Security Agency (Sassa) awarded the contract for the monthly payment of 10-million grants to Cash Paymaster Services.
Through the grant programme, the government injects more than R100-billion into poor communities every year. This elicits a flurry of economic activity at monthly pay points, where loan sharks and insurers hawk schemes to beneficiaries and hustle to reclaim monies owed.
When Sassa awarded the nationwide contract to manage the payments last year, Cash Paymaster's holding company, Net1 UEPS, advertised to investors on the New York Stock Exchange that it would "leverage" its position by selling financial instruments - microloans and funeral insurance - to beneficiaries on its system.
The Mail & Guardian detailed in September how Net1's plan appeared to flout South African law, Sassa's policy and the terms of its contract with Sassa. Competing lenders and insurers also claimed Net1, as "player and officiator", had gained an unfair advantage in its access to grant beneficiaries. The company denied the claims.
But in February, in a strongly worded letter seen this week by the M&G, the FSB suspended the licence of Net1 subsidiary Smart Life, which was set up to market funeral policies at grant pay points.
Among the regulator's concerns was that Net1, which owns 90% of Smart Life, insisted on using Cash Paymaster's social-grant infrastructure to sell insurance policies.
The regulator was highly critical of the conduct of Net1 chief executive and Smart Life chairperson Serge Belamant, saying that he did not "function within the confines and parameters of the [Smart Life] board as a collective and unilaterally approved or rejected key decisions of the board".
Belamant's triple role as Net1 chief executive, Cash Paymaster director and Smart Life chairperson was "conflicted", according to the regulator, which "may not be in the interest" of policyholders.
Net1 said it had appealed, but this week the FSB said this was not received. Last week, public protector Thuli Madonsela agreed to investigate Net1's lending business. Belamant welcomed this.
The Social Assistance Act allows for a 10% deduction from grants for funeral insurance. No other deductions are allowed, but microlenders have exploited loopholes.
Sassa has tried to clamp down on this. Last year, it banned any deductions for policies sold after June 2012.
Yet months after this date, Net1 announced that it was launching a pilot lending project targeting beneficiaries.
Sassa told the M&G at the time that Net1's plan would be impossible, as no deductions could be made from the grant before or after it was paid into a bank account managed by Cash Paymaster. But the agency appears to have backed down. This month, it directed that no more loan deductions could be made, but it appeared to concede that deductions could be made directly from beneficiaries' accounts.
In an interview with Summit TV this week, Belamant said: "We handle debit orders not through our own bank, which is Grindrod. We handle them through Nedbank. We have no advantage over anybody else."
Last year, Net1 appeared to flout its Sassa contract when it told investors it would market the loans and insurance using beneficiary profiles apparently gleaned through Cash Paymaster's infrastructure. The contract forbids it from using beneficiary data for anything but paying grants.
Another problem is that while lenders and insurers are forbidden from doing business at monthly grant pay sites, Smart Life specifically based its business on doing this, as reflected by the FSB's concerns.
Last year, the Absa-owned losing bidder AllPay challenged Cash Paymaster's R10-billion contract in the North Gauteng High Court, which found the tender was "illegal and invalid".
This was reversed on appeal and the matter is now before the Constitutional Court.
Cash Paymaster, in turn, is suing AllPay for defamation after the latter presented corruption claims to the Securities and Exchange Commission in the United States and the US justice department, both of which are now investigating.
The FSB cited the investigations as another reason to suspend Smart Life's licence.
Net1 said it had fully complied with the terms of the suspension and had not sold any insurance since.
Nevertheless, Belamant defended his lending business: "Once the naive notion that ordinary people, including social-welfare beneficiaries, should not be able to access loans and do not need loans is finally put to bed, our social programmes may start to get recognised for what the intention has always been: to provide affordable financial services to all."
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The M&G Centre for Investigative Journalism (amaBhungane) produced this story. All views are ours. See www.amabhungane.co.za for our stories, activities and funding sources.